Restructuring of Corporate Offences and de-clogging the National Company Law Tribunal mooted


The Committee on review of penal provisions of Company Act 2013 has recommended restructuring of Corporate Offences to relieve Special Courts from adjudicating routine offences and de-clogging the National Company Law Tribunal (NCLT) among other suggestions.

The final report was submitted to finance minister Arun Jaitley. The report also touches upon certain essential elements related to corporate governance such as declaration of commencement of business, maintenance of a registered office, protection of depositors’ interests, registration and management of charges, declaration of significant beneficial ownership, and independence of independent directors.

With regard to Restructuring of Corporate Offences to relieve Special Courts from adjudicating routine offences, the reports suggests re-categorization of 16 out of the 81 compoundable offences by shifting them from the jurisdiction of special courts to an in-house E-adjudication framework wherein defaults would be subject to levy of penalty by the authorised adjudicating officer (Registrar of Companies); remaining 65 compoundable offences to continue under the jurisdiction of special courts due to their potential misuse; similarly, status quo recommended in respect of all non-compoundable offences, which relate to serious corporate offences; instituting a transparent online platform for E-adjudication and E-publication of orders; and necessitating a concomitant order for making good the default at the time of levying penalty, to achieve better compliance.

According to the report, De-clogging NCLT Car be done by enlarging the jurisdiction of the Regional Director with enhanced pecuniary limits for compounding of offences under section 441 of the Companies Act 2013 (the Act); and vesting in the Central Government the power to approve the alteration in the financial year of a company under section 2(41); and conversion of public companies into private companies under section 14 of the Act.

Recommendations related to corporate compliance and corporate governance includes;

(a) re-introduction of declaration of commencement of business provision to better tackle the menace of ‘shell companies’;

(b) greater disclosures with respect to public deposits, particularly in respect of transactions exempted from the definition of public deposits under section 76 of the Act to prevent abuse and harming of public interest;

(c) huge reduction in time-limit for filing documents related to creation, modification and satisfaction of charges and stringent penal provisions for non-reporting;

(d) once a company obtains restrictions under section 90(7) relating to significant beneficial ownership, in respect of shares whose ownership remains undetermined, such shares should be transferred to the Investor Education and Protection Fund if rightful owner does not claim ownership within a year of such restrictions;

(e) non-maintenance of registered office to trigger de-registration process;

(f) holding of directorships beyond permissible limits to trigger disqualification of such directors; and

(g) imposition of a cap on independent director’s remuneration in terms of percentage of income in order to prevent any material pecuniary relationship, which could impair his independence on the board of the company.

The report was presented to Jaitley by Secretary, Ministry of Corporate Affairs, Injeti Srinivas, who chaired the committee.


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